Supreme Court Eviscerates Class Action Law Suits

[jimmy olsen]

 

http://redtape.msnbc.msn.com/_news/2011/04/27/6544896-advocates-consumers-betrayed-by-high-court-ruling-on-class-action-suits

Consumers 'betrayed' by high court ruling on class-action suits
By Bob Sullivan

Fine print in everyday consumer contracts can include provisions that require Americans to surrender their rights to file class-action lawsuits, the U.S Supreme Court ruled Wednesday, overturning a lower court ruling.

The ruling could have immediate impact on consumers' ability to fight against companies when they feel their rights have been violated. It also raises questions about the future of class-action cases.

Consumer advocates roundly criticized the decision. 

"(The ruling) is a devastating and far-reaching betrayal of the most fundamental principles of American justice," said Nan Aron, president of the Alliance for Justice, a civil rights advocacy organization. "(The court) has effectively removed any incentive for corporations to behave within the law."

When consumers sign up for everything from cell phone service to rental cars, terms of the contracts signed often compel them to forgo traditional legal mechanisms when a dispute arises, forcing them to mandatory binding arbitration instead.  Such provisions have been struck down in many state cases as "unconscionable," with various courts deciding consumers could not be compelled to surrender basic legal rights granted by the state. That is especially true in what are known as "contracts of adhesion" -- standard form contracts offered on a "take it or leave it" basis, where consumers have little bargaining power, the courts have said.

Last year the U.S. Supreme Court agreed to review a case filed in a California federal court in which AT&T's arbitration clause had been voided, a decision that was later upheld by a federal appeals court.

By a 5-4 margin, the Supreme Court overturned the appeals court ruling on Wednesday, with the majority essentially saying that federal law encouraging use of arbitration trumps state laws aimed at preserving consumer rights.

"Because it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress ... the judgment of the Ninth Circuit is reversed," wrote Justice Antonin Scalia in his opinion.

Justice Stephen Breyer wrote the dissent for the divided court.

"California courts believe that the terms of consumer contracts can be manipulated to insulate an agreement's author from liability for its own frauds by 'deliberately cheat(ing) large numbers of consumers out of individually small sums of money,' " he wrote. "Why is this kind of decision — weighing the pros and cons of all class proceedings alike — not California's to make?"

Class-action lawsuit advocates say that grouping consumers together is often the only way to force a misbehaving company to clean up its act. Most consumers can't or won't complain about small transgressions, such as erroneous $30 fees -- and many companies ignore such complaints. But pooled together, the voices of a million complaining consumers have much more power, and the ability to attract professional legal help.
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Detractors say that victims in class-action cases often receive minimal compensation – sometimes, only a coupon -- while lawyers earn millions in legal fees.  Binding arbitration, they say, can result in larger awards for consumers and dramatically reduce their legal fees.

Tort reform advocate Ted Frank, writing before the Supreme Court decision was issued, argued that class-action lawyers would benefit most from a decision against AT&T.

"In every single one of my cases, my clients would have been better off ... with the  AT&T Mobility arbitration provision than with what class-action attorneys negotiated for them," he wrote. "The media is uniformly describing this case as one of consumers vs. businesses, when it's really one of consumers vs. lawyers trying to protect their monopoly on dispute resolution procedures."

But some studies have called into question the fairness of arbitration boards, and their composition. In 34,000 California arbitration cases filed with the National Arbitration Forum between 2003 and 2007 and studied by Public Citizen, consumers prevailed only 4 percent of the time.

Harvey Rosenfield, founder of California-based organization Consumer Watchdog, said the Supreme Court ruling "effectively eliminates" protections against unfair small print.

"This decision means it will be open season on consumers," Rosenfield said. "It slams the courtroom doors shut on Americans who are nickeled and dimed by big corporations. Knowing they can never be held accountable, American corporations will be emboldened to fleece their customers."

Now, consumer advocates are worried that Americans will have a hard time standing up to large companies when small-dollar issues are involved.

"Through this ruling, the court's ultra-conservative majority continues its relentless effort to shift power to corporate interests while hobbling the ability of everyday Americans to band together within the legal system to fight back against corporate misbehavior," said Aron, the Alliance for Justice president. "After today's ruling, corporations will now be able to decide on their own which civil rights and consumer protections they want to obey, knowing that there will be no effective means available to their victims to find redress."

The issue of binding arbitration isn't settled, however. The financial reform law passed by Congress last year that created the Consumer Financial Protection Bureau mandated that the agency study the arbitration issue and ban techniques that are deemed "anti-consumer." The law creating the agency gives it the task of conducting a six-month study of arbitration agreements, then grants it the ability to void such agreements in contracts involving consumer financial issues.
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Legislation banning binding mandatory arbitration clauses in consumer contracts also has been introduced in Congress, most recently by former Sen. Russ Feingold, D-Wis., and Rep. Ed Markey, D.-Mass., but has stalled several times.

[Faeelin]

Hey, Congress can overturn this anytime it wants.

[Barrister]

Your hatred of the freedom to contract has been duly noted Tim.

[alfred russel]

It is a biased article that seems to have suckered Tim. The number of class action lawsuits in the US has exploded in recent years, and is out of line with both our history and the rest of the world. Many of the lawsuits generate large fees for lawyers and administrators, but "consumers" get coupons or similarly meaningless compensation.

"Consumer advocates roundly criticized the decision."

Consumer advocates, or a Washington DC based lobbying group funded in large part by trial lawyers? No reason to ask the question, lets just take their quotes at face value:

"(The ruling) is a devastating and far-reaching betrayal of the most fundamental principles of American justice," (fundamental principles of American justice apparently emerged a few years ago when class action lawsuits started to take off), "(The court) has effectively removed any incentive for corporations to behave within the law." No reason to challenge that statement either.

[DontSayBanana]

Worst ruling since corporate campaign contributions.

Of course, if we got on Congress to actually codify a class-action tort right, there'd be no issue, since contracts can't void law.

[DontSayBanana]

It is a biased article that seems to have suckered Tim. The number of class action lawsuits in the US has exploded in recent years, and is out of line with both our history and the rest of the world. Many of the lawsuits generate large fees for lawyers and administrators, but "consumers" get coupons or similarly meaningless compensation.

"Consumer advocates roundly criticized the decision."

Consumer advocates, or a Washington DC based lobbying group funded in large part by trial lawyers? No reason to ask the question, lets just take their quotes at face value:

"(The ruling) is a devastating and far-reaching betrayal of the most fundamental principles of American justice," (fundamental principles of American justice apparently emerged a few years ago when class action lawsuits started to take off), "(The court) has effectively removed any incentive for corporations to behave within the law." No reason to challenge that statement either.

Alright, fair point- IIRC, my compensation in the class-action brought against VISA for finance charges was something like $0.37.

Although, wouldn't that make a stronger case for clarifying when a case can be accepted, not just going with big companies and saying that tort rights don't apply whenever a biggie puts the right fine print in?

[alfred russel]

Alright, fair point- IIRC, my compensation in the class-action brought against VISA for finance charges was something like $0.37.

It isn't a secret what is going on. When a case is settled (they almost always settle), the negotiation makes it as difficult as possible to file a claim, and the fees as high as possible. If the attorneys got you $40 or whatever your losses might have been, the cost to VISA would have been probably too high to get them to settle. Instead, offer VISA a deal for $.37 to you, a bunch of money to the attorneys and administrators, and the overall cost to VISA is relatively low. VISA escapes legal liability, the attorneys get millions, and you get $.37. True justice, 21st century american style.

[Admiral Yi]

Go get 'em Fredo.

I was hoping this thread would be about a decision in the Wally World case.

[DontSayBanana]

Go get 'em Fredo.

I was hoping this thread would be about a decision in the Wally World case.

Nah, this doesn't have any bearing on issues where arbitration hasn't been mandated by contract or isn't considered legal ADR.  SCOTUS just said "yes, clauses forcing arbitration instead of civil suit are legal."

[DGuller]

It's so heartening to continue seeing all those 5-4 decisions.  It makes our legal system so credible when its direction is determined by how strategic justices are at timing their retirements or deaths.

[DGuller]

Maybe in the future, we should just cut the bullshit, and institute requirements to future Supreme Court nominees that really count.  They must be of proper ideology, no older than 15 to ensure maximum longevity while the nomination opportunity is still in the right hands, they must get excellent marks on their physical exam, and no diseases must run in their families.  It's certainly going to be a more intellectually honest system then just seeing how the nominees are going to dodge the Roe v. Wade question.

[grumbler]

It is a biased article that seems to have suckered Tim. The number of class action lawsuits in the US has exploded in recent years, and is out of line with both our history and the rest of the world. Many of the lawsuits generate large fees for lawyers and administrators, but "consumers" get coupons or similarly meaningless compensation.

"Consumer advocates roundly criticized the decision."

Consumer advocates, or a Washington DC based lobbying group funded in large part by trial lawyers? No reason to ask the question, lets just take their quotes at face value:

"(The ruling) is a devastating and far-reaching betrayal of the most fundamental principles of American justice," (fundamental principles of American justice apparently emerged a few years ago when class action lawsuits started to take off), "(The court) has effectively removed any incentive for corporations to behave within the law." No reason to challenge that statement either.

Are you implying that blogs are not news stories, and that only morons post blog entries and then react to them as though they were factual? 



You are?


Well-done!  I have been saying that for years.

[grumbler]

It isn't a secret what is going on. When a case is settled (they almost always settle), the negotiation makes it as difficult as possible to file a claim, and the fees as high as possible. If the attorneys got you $40 or whatever your losses might have been, the cost to VISA would have been probably too high to get them to settle. Instead, offer VISA a deal for $.37 to you, a bunch of money to the attorneys and administrators, and the overall cost to VISA is relatively low. VISA escapes legal liability, the attorneys get millions, and you get $.37. True justice, 21st century american style.

I was recently part of a case like you describe.  The lawyers split $40 million, and the litigants each got a coupon for 50% off a grossly overpriced life insurance policy for three months.  Litigants had to pay (essentially) to avoid becoming part of the class.

[The Minsky Moment]

Worst ruling since corporate campaign contributions.

Of course, if we got on Congress to actually codify a class-action tort right, there'd be no issue, since contracts can't void law.

They did codify it - Rule 23 of the Federal Rules of Civil Procedure.  But that is not relevant here because this case concerned an agreement to arbitrate disputes and thus the relevant law is not the FRCP but the Federal Arbitration Act.

Contra the OP, this case is not about whether as a general matter, or as a matter of federal or constitutional law, parties to a contract can, via and agreement to arbitrate claims, waive the right to proceed as a class action.  They can and that is unexceptional.  Nothing in the FAA prohibits that.

The actual question in this case is whether an individual state can, through its own state contract law, effectively invalidate such waivers with respect to arbitration agreements entered into within its jurisdiction.  Thus, what was actually at issue in the case was not consumer rights per se, but rather a conflict between national policy as expressed in the FAA, and state policy as expressed in state contract rules.

The irony here is that the "conservative" justices who usually give great respect for federalism and state policy voted that the national policy should prevail  whereas the "liberal" justices that typically emphasize the supremacy of national policy voted to vindicate the state policy here.

Which just goes to show that activism and results-orientation is universal to the judiciary and crosses ideological lines.  Jerome Frank triumphant.

[KRonn]

It isn't a secret what is going on. When a case is settled (they almost always settle), the negotiation makes it as difficult as possible to file a claim, and the fees as high as possible. If the attorneys got you $40 or whatever your losses might have been, the cost to VISA would have been probably too high to get them to settle. Instead, offer VISA a deal for $.37 to you, a bunch of money to the attorneys and administrators, and the overall cost to VISA is relatively low. VISA escapes legal liability, the attorneys get millions, and you get $.37. True justice, 21st century american style.

I was recently part of a case like you describe.  The lawyers split $40 million, and the litigants each got a coupon for 50% off a grossly overpriced life insurance policy for three months.  Litigants had to pay (essentially) to avoid becoming part of the class.

Bizarre.       Distressing but funny, in a black humor kind of way.  Er, maybe unless you got a bunch of nice coupons??